Bombardier Inc. tumbled the most in more than three years as a weakened cash-flow forecast sowed doubts about Chief Executive Officer Alain Bellemare’s progress in turning around the debt-laden maker of trains and aircraft.

The company will only be able to attain its target of breaking even on a cash-flow basis this year by including the proceeds from a US$635 million land sale in Toronto. The previous forecast excluded those funds. Bellemare cited capital needs at the company’s rail business for spoiling the cash-flow goal, which includes leeway of plus or minus US$150 million.

“Investors won’t like the big chop to cash-flow guide, which raises questions regarding management credibility and ability to complete a successful turnaround,” Cai von Rumohr, an analyst at Cowen & Co., said Thursday in a note to clients.

The Canadian manufacturer is working off US$9.5 billion in adjusted debt, which was largely incurred as it poured money into two aircraft-development programs plagued with delays and cost overruns. The Global 7500 private jet is set to debut next month, marking the end of the company’s heavy investment cycle. Bombardier ceded control of the CSeries passenger plane in July to Airbus SE, which renamed it the A220.

Bombardier’s widely traded Class B shares plunged 13 per cent to $2.76 at 11:12 a.m. after sinking as much as 27 per cent for the biggest intraday decline since January 2015. The drop threatened most of the stock gains since the deal with Airbus was announced last year.

Job Cuts

Bellemare also accelerated his push to streamline Bombardier by announcing 5,000 job cuts and the sale of the company’s Q400 turboprop operation and a training business.

The company will reap about US$900 million from the asset sales and save about US$250 million a year by 2021 from the employment reduction, which is the CEO’s third since taking the reins in 2015. The cut represents more than 7 per cent of the company’s workforce.

Half the lost jobs will be in Bombardier’s home province of Quebec. The provincial government gave the company a lifeline about three years ago by agreeing to invest US$1 billion in the CSeries program. The Canadian government provided Bombardier with $372.5 million in reimbursable funding for the CSeries and Global 7500 programs last year, stopping short of directly investing in the company.

“This is very bad news, it sends a worrisome message about the future of the industry,” Renaud Gagne, head of the Unifor labour union’s Quebec branch, said in a statement. “We are in the dark as far as what comes next.”

Commercial-Aviation Exit

Bombardier will sell its Q Series turboprop program and de Havilland trademark to a subsidiary of Canada’s Longview Aviation Capital Corp., the parent company of Viking Air Ltd., which makes the Twin Otter propeller plane. CAE Inc. will buy Bombardier’s business-jet flight and technical training activities.

Bellemare probably isn’t done remaking Bombardier. The company said it will “explore strategic options” for its CRJ regional-jet program. The focus for now is on reducing cost and increasing volumes while optimizing aftermarket revenue for about 1,500 CRJs in service.

The moves hasten a future in which growth will revolve around private jets and trains.

Together, those two businesses accounted for about 88 per cent of third-quarter sales.

Bombardier’s liquidity boost from the asset sales should bring the company closer to reacquiring a minority stake in its rail business from the Caisse de Depot et Placement du Quebec, RBC Capital Markets analyst Walter Spracklin said. The company is assessing buyback options for the stake, Bombardier chief financial officer John Di Bert said on a conference call with analysts.

With the aerospace investment effort complete, key engineering team members will be redeployed. The largest group will move to the private-plane operation “to ensure they have all the necessary capabilities for future business jet development programs,” Bombardier said.

Financial Outlook

The Montreal-based manufacturer is counting on a 2019 sales boost after next month’s expected debut of the Global 7500, its largest business aircraft. Bombardier expects to deliver 15 to 20 of the planes next year, and twice as many in 2020, Di Bert said.

Revenue will increase about 10 per cent to US$18 billion in 2018, with earnings before interest, taxes and special items targeted to climb about 20 per cent to as much as US$1.25 billion, the company said. The job cuts are expected to result in a restructuring charge of about US$250 million.

In the third quarter, adjusted earnings rose to 4 cents a share, topping the 2 cent average of analyst estimates compiled by Bloomberg. Sales fell 5.1 per cent to US$3.64 billion, compared with the average estimate of US$3.87 billion. The company burned through US$370 million of cash in the period, an improvement from the US$495 million it used a year earlier.

Results in Bombardier’s regional aircraft business, which includes the Q400 turboprops and the CRJs, have traditionally lagged those of trains and business jets.

In the third quarter, the commercial aircraft business recorded a loss of US$9 million before interest, taxes and special items. Profit in trains was US$187 million, while business aircraft earned US$89 million.

If Friday's gains are anything to go by, investors are champing at the bit

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